Frankly, I don’t feel like writing about this anymore except to register my general dissatisfaction with the recent criticisms of modern macroeconomics. The critics don’t seem to have noticed the progress made in the field in the last several decades.

Wilkinson – Macro people have been studying social psychology (aka expectations) for a long time. We know something about it. I do agree, however, that we know very little about how fiscal policy affects expectations.

Krugman – Fama’s not a macroeconomist so his his writings are a noisy signal from which to glean information about the state of knowledge in macroeconomics and you’re ignoring everything but the first couple of paragraphs of Cochrane’s paper.

Waldman – Everyone in macro uses DSGE models with imperfect competition and price stickiness. And, horrors, everybody assumes rational expectations except when, of course, they don’t. The freshwater vs. saltwater distinction is moot. The debate is about what frictions matter, not whether or not there are frictions and its certainly not about methodology.

Wolfers – Did you check to see how many references to “phlogiston” there are in the physics literature lately? Does ideological bias explain this trend? Those bastard right- (or is it left-) leaning physicists! Grrr… the answer is fiscal policy doesn’t F-ing work so why F-ing study it!!!111!!!

This isn’t these critics’ fault, of course. Macro people have been bad at getting the message out.

If you really care about the state of knowledge in macroeconomics, there’s a great set of papers in the inaugural edition of the the AEJ: Macroeconomics journal. I like the Michael Woodford paper the best. It is accessible to everybody.

What did you think when cochrane wrote this: “Even the optimistic projections by the Obama economic team say that fiscal stimulus will not really kick in for two years, validating the durability of this view.” –In fact, the CBO reports that about 2/3rds of the stimulus will come in the next 20 months…

Just curious what you liked about the Cochrane article. My reading of it suggests that it’s pretty much total crap all the way through… Like when he says “Keynesian economics was a failure in practice” or when he blames Keynes for slow growth in Britain, or when he writes that “all we have to agree is that expectations of the future matter crucially for how people behave today, and the classic Keynesian analysis of fiscal stimulus falls apart.” Um, Keynes certainly knew about expectations — that’s not even something that the average person on the street doesn’t realize — so how does that make the case for doing more government spending during periods, like now, when there is little private investment to crowd out “fall apart”. Cochrane is utterly incoherent…

I thought there were spots of insight in the Cochrane article (I never considered the possible equivalence of fiscal and monetary policy; that helicopter drops were fiscal policy), but it was pretty weak over all.

Krugman takes a bit of stupid from that paper and extrapolates to all of modern macroeconomics that stupidity.

[...] observes that Arnold’s views are outdated and this is a problem with non-macro economists in general. He points to this essay and I find myself convinced that modern macroeconomics is a coherent study [...]